Northrop Posts 5% Rise in Profit
Defense contractor Northrop Grumman Corp. said Tuesday that its third-quarter net income rose 5% from higher sales of military electronics and unmanned airplanes that offset hurricane-related losses at its Gulf Coast shipyards.
The Century City-based company posted earnings of $293 million, or 81 cents a share, compared with $278 million, or 76 cents, in the year-earlier period.
Revenue rose less than 1% to $7.44 billion despite a 20% drop in shipbuilding sales as damage from Hurricane Katrina caused significant production delays. Northrop said repair expenses also reduced its pretax operating earnings in the ship systems business by $165 million, or 30 cents a share.
About 19,800 workers were displaced by the storms at its shipyards in Pascagoula, Miss., and New Orleans, where Northrop builds destroyers and oil tankers. Some temporary housing has been set up at the shipyards, and about 13,400 workers are back on the job.
Previously, Northrop estimated that storm-related repairs and delays at the shipyards would cost the company $1 billion. In a filing Tuesday with the Securities and Exchange Commission, Northrop said that it hoped to recover much of the cost from its insurance policy, but that its insurance provider was in “disagreement regarding coverage for certain losses above $500 million.”
A Northrop spokesman said if the company didn’t prevail it would use its capital expenditure budget to pay for repairs and reconstruction of damaged properties and did not anticipate taking a charge against earnings.
Except for ship systems, results across the other six businesses were “strong,” Northrop Chief Executive Ronald D. Sugar said in a conference call with analysts.
Northrop, with more than 27,000 workers in Southern California, makes and develops equipment and systems for the federal government including anthrax detection devices for the Postal Service, nuclear aircraft carriers for the Navy, unmanned spy planes for the Air Force and missile systems.
The largest sales gains were posted by its El Segundo-based Integrated Systems unit, which makes early warning electronic equipment for warplanes; sales surged 23% to $1.43 billion from $1.16 billion. Sales at Northrop’s Redondo Beach-based Space Technology unit, which builds spy satellites, rose 2% to $842 million from $823 million.
With better-than-expected operating profit, Sugar said Northrop was raising its full-year earnings guidance slightly to a range of $3.60 to $3.70 a share, up about 5 cents from estimates it gave two weeks ago. It projected sales of $30.5 billion to $31 billion.
For the third quarter, Northrop posted earnings from continuing operations of 80 cents a share, better than the average of 69 cents a share that Wall Street expected.
Separately, in an SEC filing, Northrop said it had been told by the Justice Department and a “classified U.S. government customer” that the company could face “substantial claims” related to microelectronic parts that were produced by a former TRW Inc. unit that Northrop acquired.
Northrop said it had been asked to respond to questions as federal prosecutors were mulling over the possibility of filing a lawsuit against the company. If Northrop loses the case, liability and compensatory damages could have a material effect on its finances, the company said.
Northrop also said it planned to repurchase $1.5 billion worth of shares over the next 18 months. On Tuesday, its shares fell 98 cents to $52.92.
